The S&P 500 closed at 4,173.85 down from and ATH of 4,232.60 last Friday. It was one of those weeks where those numbers are deceiving. It felt like the world was falling apart, particularly if you are more than market-weight in high-flying growth stocks. The inveterate top callers began chest-thumping and saying a deeper fall was imminent. At FSInsight, we like to think cooler heads prevailing is somewhat our MO. We hope you enjoyed the intraday blasts this week, even our staff is shocked by the accuracy. We’d like to take a second to single out someone that we are very big fans of. That is you.
We feel privileged to help you navigate markets. We’ve been honored to be receiving a lot of interest on both the institutional and retail side in our research. Your trust and support make our research possible and we are convinced we are building the premier investment community in the market. You, as our subscribers, are an essential component of the equation and we thank you for your engagement and suggestions that has contributed to us honing and improving our product for your benefit. We know markets are rough sometimes and when they drop like they did on Wednesday we get that very same feeling in the pit of our stomach that you get.
However, this community focusses on the data and on engaging with our higher minded impulses when many are capitulating to their most primitive ones like panic and fear. This is always the astute investor’s opportunity and we hope the roller coast ride in markets this week ended well for you!
The word of the week is definitely inflation. If there were a second it might be fear. The CPI reading of 4.2% was considered very, very hot and scared markets into a vicious sell-off on Wednesday. This financial boogeyman, long absent from markets—so much so that most living managers have never had to truly deal with it.
As we approached the brow of the hill from which it was expected we could see Harris’s camp, and possibly find his men ready formed to meet us, my heart kept getting higher and higher until it felt to me as though it was in my throat. I would have given anything then to have been back in Illinois, but I had not the moral courage to halt and consider what do; I kept right on. When we reached a point from which the valley below was in full view, I halted. The place where Harris had been encamped a few days before was still there and the marks of a recent encampment were plainly visible, but the troops were gone. My heart resumed its place. It occurred to me at once that Harris had been as much afraid of me as I had been of him. This was a view of the question I had never taken before, but it was one I never forgot afterwards- Ulysses S. Grant
General Grant is an American titan and one of the most formative and influential figures in our country’s history. However, like any human being upon first entering combat in the American Civil War as a leader he experienced paralyzing fear. We may forget today that before his great achievement he was largely considered a failure and struggled to even buy his family Christmas presents shortly before the war began. However, it was the above realization that enabled him to defeat his enemy with indefatigable persistence.
Anyone who says they wouldn’t be afraid in the described situation above is probably lying. Fear is natural, it is common and understanding it is crucial to understanding how to consistently make money in markets. Brains are great, fundamental analysis and understanding the stocks you own is great, but if you panic and sell every time the tape shocks you, then it will be very hard to make money. We know it’s hard. You have to go against what feels natural many times. However, the time-tested tradition of buying ‘when there’s blood in the streets, even if it’s your own,’ as Barron Rothschild famously quipped, will make you money time and time again. The long-term trajectory of the stock market is up. Given we just survived a global pandemic with flying colors in many respects, we don’t think that’s going to change anytime soon!
The quote above illustrates that General Grant came to learn an important lesson about fear that would have a great bearing on his conduct throughout the rest of the war. Though this metaphor is of course not apples to apples, if you held strong after Wednesday’s bloodbath of a market and came out on top you may somewhat understand what the great Union commander was getting at.
However, those who kept cool and bought into the weakness were rewarded when markets gained substantially on both Thursday and Friday. The breadth of the recovery was strong. The VIX spiked nearly 80% on three days which as my colleague Tom Lee pointed out in one his now legendary intraday blasts (renowned for their prescience and actionable nature). This is typically a sign of capitulation and that a sell-off has exhausted itself.
Other markets have been strong. High-yield coupons continue to hover at or near all-time lows. The market failed to crash, so we believe it’s dusted the rust off and is ready for a leg higher, led by Epicenter. Re-opening has officially arrived, we think. We’ve also added a great graph from our data science tea with Fed hikes historically compared to PCE. We noticed it has some similarities to 2001-2002 period when rates also spiked off YoY after anomalous lows.
